The process of globalization, and its impact on economic growth have become the defining influence on the development of modern China. China's integration into the global economic system has been a multifaceted and complex process, and one that China appears exceptionally eager to embrace. Encompassing domestic policy shifts, engagement with both global and regional institutions, as well as bilateral agreements with various countries, globalization has been an impressively orchestrated process initiated by the very top of the Chinese Communist Party. While advocates of globalization tout the growth of China as proof of its merits, analyzing the actual effects on the ground reveals a much more nuanced reality. Globalization has undoubtedly brought China more wealth and power, but it has also generated a host of other effects, both positive and negative.

First and foremost, one must acknowledge the plainly visible fact that the Chinese economy has grown exponentially since the process of integration into the global economic system began. China's comparative advantages, particularly in the labor sector, has transformed it into the second largest recipient of FDI in the world.[1] Over the course of the last 20 years, exports have grown approximately 17.1 percent per year.[2] This ultimate result of this investment and trade has been an overall growth rate 8 percent per annum,[3] which would have been completely unattainable without the country's engagement in globalization. Foreign investments have been key in providing the both intermediate inputs and technological means of production for the exports that the Chinese economy depends on. The revenue generated from exports has offered China unprecedented financial resources, which have been invested around the world.

The current status of China as the world's second biggest economy, and the clout that such status grants, would have been utterly impossible without this process of economic liberalization and integration with the global economy. If one were to pass judgment solely upon this basis, then China's globalization would appear an unequivocal success story. From a national perspective, globalization has single-handedly created the foundation necessary for the “Chinese economic miracle”. It would be a mistake, however, to conflate the concepts of growth and development, as each describes a distinct phenomenon. A complex process like globalization, particularly in the case of a country as diverse and expansive as China, does not have a single result, but rather has a variety of effects across the entire country, each effect dependent on multiple factors.

When considering the more nuanced results, China's engagement with the global economy cannot be easily categorized as purely beneficial in every regard, though it has been ultimately positive in terms of aggregate well-being.[4] Most prominently, it has exacerbated further the economic divides within the country due to uneven rates of development. Based on the policies implemented, this was actually the original intent of the process; in regards to the rationale for the creation of Special Economic Zones, Deng Xiaoping specifically stated, “let some people get rich first.”[5] The initial process of inviting foreign investment to the PRC via SEZs was specifically limited to certain geographical regions, all of which were deliberately located on the coast to take advantage of their proximity to the booming economies of Taiwan and Hong Kong. Therefore, this process of gradual “opening up” has resulted in regional economic inequalities by design.

These regional disparities have become the most prominent economic divide in the country today. The consistently invoked paradigm is that of a booming, highly developed coastal region receiving the lion's share of foreign investment, while the vast interior remains all but forgotten by the global market. This is not entirely true, as the interior has grown at a substantial rate, but does continue to lag behind significantly in growth rates with the coast.[6] A better description of the actual economic disparities on the ground would separate the country into three distinct regions: the coastal region, the central region, and the western region, each with their own unique economic situation. With their respective shares of total GDP at 58, 28 and 14 percent,[7] it is abundantly clear that economic development has been unbalanced in favor of the coast. The “economic miracle”, therefore, remains relatively isolated to one sector of Chinese society and has yet to truly take hold throughout the country.

Inequality within the populations of regions and locales themselves has increased as well as a result of globalization, particularly as the sources of employment shift away from state-owned enterprises. While such a policy change was clearly necessary to reduce the burden of unproductive, loss-generating, subsidized sectors in the face of global competition, the dismantlement of the “Iron Rice Bowl” has had far-reaching effects, particularly in urban areas. Formerly distinct economically from rural populations, these changes have caused urban areas to undergo seismic shifts in their economic demography. Subsequent to the Chinese state's full engagement with globalization, sectors of the urban population have lost substantially in terms of their economic status, as the changes in the means of production that globalization brought has reduced the demand for unskilled labor.[8] As the gini coefficient, measuring economic inequality, surpassed a perceived threshold for societal instability of 0.40, a realization is taking hold among the top echelons of the CCP that the current mode of economic development will potentially unleash some form of social unrest unless the fruits of growth are distributed more equitably.[9]

The fact that China's economic development has been so dependent on FDI and export earnings also raises its own concerns, primarily the fact that a large segment of the Chinese economy is out of the hands of domestic institutions and now is under the control of foreign actors. The state no longer has the ability to direct resources as it sees fit, and economic growth has become hostage to global market forces. This is due, in part, to the very nature of globalization, which by definition reduces the power of governments to control capital. However, whether or not this emphasis on foreign investment as the primary means of economic development has gone too far has become a pressing question.

The current scenario of an abundance of export-oriented FDI potentially has the effect of hampering domestic economic development, as much of this FDI does not seek to create backward linkages within the country. Rather, they often adhere to an import-assemble-export model that offers little to the domestic economy. Additionally, while technology transfers have occurred on a limited basis, they remain lackluster at best. Combined, these factors clearly show that while growth is certainly taking place on a statistical basis, genuine development in many sectors remains comparatively elusive.[10]

These factors, such as a significant dependence on FDI, a lack of any notable technological edge over other economic powers, and massive inequality color the Chinese economy as characteristically closer to that of a country located on the global periphery.[11] This is particularly interesting to note due to the fact that China has already become one of the most important players in the global economy, despite the fact that it still does not resemble a developed country. Therefore, economic development as a result of globalization has either potentially been misguided thus far, neglecting sufficient investment in domestic sectors, or simply has yet to live up to its full potential. Whichever is the case, policy adjustments must be made to remedy these deficits.

If one merely considers the superficial aspects of Chinese economic growth, then globalization appears to be nothing but a pure success. GDP has grown by orders of magnitude, Chinese exports dominate the global marketplace, FDI has skyrocketed, and aggregate income levels have risen. The importance of these indicators should not be downplayed; they do indeed reveal that China, on the whole, is developing on an unprecedented scale since it became a full member of the global economy. However, there are a number of negative externalities that should not be ignored, and eventually will need to be confronted. Inequality has been grossly exacerbated by this process, as the greatest portion of the growth has been captured by a limited group of people, defined by class and by region. Additionally, Chinese economic growth may not always constitute true “development”, as dependence on foreign investment leads priorities astray from domestic investment toward an emphasis on exporting goods. When one objectively observes the Chinese economy today, it still retains many of the defining characteristics of a developing nation. The actual value of globalization's contribution to Chinese economic development, therefore, remains unclear at this point in time.

About the author:

Michael McCall is a graduate student in Political Studies at the American University of Beirut. He holds an MA in International Relations from Leiden University. He is concurrently a research assistant at the Issam Fares Institute for Public Policy and International Affairs in Beirut, Lebanon, and an assistant editor for the Sociology of Islam Journal (Brill). His research interests include Chinese-Middle East relations, political Islam, and international political economy.

[1]    Guanghua Wan, Ming Lu, and Zhao Chen, “Globalization and Regional Income Inequality: Empirical Evidence from within China,” Review of Income and Wealth 53, no. 1 (2007): 38.

[2]    Yongnian Zheng and Yang Zhang, “Globalization and Social Conflict in China,” Issues and Studies 42, no. 2 (2006): 97.

[3]    Shaun Breslin, China and the Global Political Economy (Palgrave Macmillan Basingstoke, 2007), 157.

[4]    Shang-Jin Wei, “Is Globalization Good for the Poor in China?,” Finance and Development 39, no. 3 (2002): 26–29.

[5]    “Deng Xiaoping’s Lasting Legacy,” The Japan Times, August 27, 2014, http://www.japantimes.co.jp/opinion/2014/08/27/editorials/deng-xiaopings-lasting-legacy/.

[6]    Masahisa Fujita and Dapeng Hu, “Regional Disparity in China 1985–1994: The Effects of Globalization and Economic Liberalization,” The Annals of Regional Science 35, no. 1 (2001): 8.

[7]    Jian Chen, Shujie Yao, and others, Globalization, Competition and Growth in China (Routledge, 2006), 147.

[8]    Zheng and Zhang, “Globalization and Social Conflict in China,” 102–106.

[9]    Breslin, China and the Global Political Economy, 176.

[10]   Ibid., 186.

[11]  David Zweig and Zhimin Chen, China’s Reforms and International Political Economy (Taylor & Francis, 2009), 52.